Alan Nisselson, for Transmar Commodity Grp., Ltd. v. Bank of the W. (In re Cocoa Servs., L.L.C.)

• Decision Date: 13 April 2018
• Docket Number: Case No. 17-11936-JLG,Adv. Proc. No. 17-01182-JLG
• Parties: In re: Cocoa Services, L.L.C., et al. fdba Cocoa Services, L.P., Debtor. Alan Nisselson, as Chapter 7 Trustee for Transmar Commodity Group, Ltd., Plaintiff, v. Bank of the West, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

In re: Cocoa Services, L.L.C., et al. fdba Cocoa Services, L.P., Debtor.

Alan Nisselson, as Chapter 7 Trusteefor Transmar Commodity Group, Ltd., Plaintiff, v. Bank of the West, Defendant.

Case No. 17-11936-JLG

Adv. Proc. No. 17-01182-JLG

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

April 13, 2018

NOT FOR PUBLICATION

Chapter 11

MEMORANDUM DECISION GRANTING DEFENDANT'S MOTION TO DISMISS COMPLAINT

APPEARANCES:

THOMPSON & KNIGHT LLP

811 Main Street

Suite 2500

Houston, TX 77002

By: Anthony F. Pirraglia, Esq.

Counsel for Defendant Bank of the West

WINDELS MARX LANE & MITTENDORF LLP

156 W. 56th St

New York, NY 10019

By: James M. Sullivan, Esq.

Counsel for Plaintiff Alan Nisselson, as Chapter 7 Trustee for Transmar Commodity Group, Ltd.

HONORABLE JAMES L. GARRITY, JR. UNITED STATES BANKRUPTCY JUDGE:

Cocoa Services, L.L.C. ("Cocoa Services") and Morgan Drive Associates, L.L.C. ("Morgan Drive," with Cocoa Services, the "Debtors") are chapter 11 debtors in this Court. The Bank of the West ("BOW") is asserting a pre-petition claim against Cocoa Services in the sum of at least $5,308,526.09. BOW maintains (and the Debtors have so stipulated) that the claim is fully secured by a lien on all of Cocoa Services' assets. Transmar Commodity Group LTD ("Transmar"), a chapter 7 debtor herein, is among Cocoa Services' largest creditors. Alan Nisselson, as the chapter 7 trustee of the of estate of Transmar (the "Trustee"), denies that BOW perfected its alleged security interests in Cocoa Services' property and has commenced this adversary proceeding by filing a complaint (the "Complaint") essentially to challenge BOW's claim.¹ BOW has moved to dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), as made applicable herein by Federal Rule of Bankruptcy Procedure 7012, for failure to state a claim upon which relief can be granted (the "Motion").² The Trustee opposes the Motion.³

For the reasons set forth herein, the Motion is GRANTED.

Jurisdiction

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(a) and (b)(1) and the Amended Standing Order of Referral of Cases to Bankruptcy Judges of the United States District Court for the Southern District of New York, dated January 31, 2012 (Preska, C.J.). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A).

Facts⁴

Background

On December 31, 2016, Transmar filed a voluntary petition for reorganization under chapter 11 of the Bankruptcy Code in this Court. Complt. ¶ 1. Transmar remained in possession and control of its business and assets as a debtor in possession until July 26, 2017, when the Court granted the Debtor's prepetition lenders' motion and converted Transmar's chapter 11 case to one under chapter 7 of the Bankruptcy Code. Id. ¶¶ 14-17. The Trustee's appointment was effective on July 26, 2017. He continues to serve in that capacity. Id. ¶¶ 7, 18.

On July 14, 2017 (the "Petition Date"), the Debtors filed separate voluntary petitions for relief under chapter 11 of the Bankruptcy Code in this Court. Id.

¶ 27. Both Debtors have remained in possession and control of their businesses and assets as debtors in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. Id. ¶ 28. The United States Trustee ("U.S. Trustee") has not appointed an unsecured creditors committee (a "Creditors' Committee") in these cases. The Debtors are affiliates and wholly-owned subsidiaries of Transmar. Id. ¶ 7. As of the Petition Date, Cocoa Services operated a cocoa liquor and cocoa butter melting and deodorizing facility in New Jersey, while Morgan Drive, a real estate holdingcompany, owned the land and building at which Cocoa Services operated. Historically, Transmar was one of Cocoa Services' largest customers. Id. ¶ 19. By order dated October 4, 2017 (the "Sale Order"), the Debtors sold substantially all of their assets to Carlyle Cocoa Company L.L.C. Id. ¶¶ 28, 30.⁵ That sale was "as is," "where is" and free and clear of all liens, with such liens attaching to the sale proceeds, with the same validity, enforceability, priority, force and effect as they had prior to the sale. Id. ¶¶ 28-31.

As of the Petition Date, Cocoa Services was party to a Master Equipment Financing Agreement dated April 8, 2014 (as amended, restated, supplemented and/or otherwise modified from time to time) (hereinafter to be referred to as the "Equipment Financing Agreement" or the "Security Agreement") with BOW. Id.

¶ 9. Pursuant to that agreement, among other things, BOW loaned Cocoa Services funds (the "Equipment Loans") to acquire certain machinery and equipment (the "Specified Equipment"), as set forth in the schedules (the "Equipment Schedules") incorporated as part of the Security Agreement. Id. The Trustee contends that as security for the Equipment Loans, Cocoa Services purported to grant BOW a security interest in the Specified Equipment and that BOW purported to perfect that security interest by filing UCC-1 financing statements. Id.

¶¶ 10, 11.

On August 28, 2017, Cocoa Services filed its Schedules of Assets and Liabilities. Id. ¶ 32; see also Schedules of Assets and Liabilities for Cocoa Services, L.L.C. [ECF No. 86]. In Schedule D (Creditors Who Have Claims Secured by Property), Cocoa Services (i) scheduled BOW as a secured creditor with a claim in the amount of $5,308,526.09 (the "BOW Claim"), (ii) described its property that is subject to a lien as "[s]ubstantially all of the Debtor's assets, asdescribed in the underlying loan documents and related UCC filings[,]" and (iii) listed the value of the collateral that supports the BOW Claim as "Unknown." Id. BOW has not filed a proof of claim herein. Complt. ¶ 33.

On July 14, 2017, the Debtors filed a motion (the "Cash Collateral Motion") seeking authorization to utilize cash collateral,⁶ which the Court granted on a final basis by order dated August 15, 2017 (the "Final Cash Collateral Order").⁷ See generally Complt. ¶ 34 (describing miscellaneous provisions of Final Cash Collateral Order). Without limitation, under that order, and pursuant to sections 361 and 363(e) of the Bankruptcy Code, the Court granted BOW replacement liens and superpriority claims as adequate protection of its interests in its "Prepetition Collateral." See Final Cash Collateral Order ¶¶ 2 a. & b. For these purposes, the term "Prepetition Collateral" means:

Cocoa Services' assets, "described in the Schedule, including all of Cocoa Services' equipment, machinery, tools, parts, inventory, fixtures, accounts, documents, general intangibles, contract rights, government payments, chattel paper, rents and income payment intangibles and obligations arising now or hereafter thereunder and all proceeds of any of the foregoing and all products of, additions to, replacements of, and returns and repossession of such collateral and all accessories, accessions, parts and machinery and equipment now or hereafter affixed to such collateral, as further set forth in the Prepetition Financing Documents."

Cash Collateral Motion ¶ 9. The grant of adequate protection was subject to a "Carve-Out" in favor of: (i) the Clerk of the Court; (ii) the United States Trustee; and (iii) counsel to the Debtors and Creditors' Committee (if any).⁸ In addition, pursuant to the Final Cash Collateral Order, the Debtors stipulated (the "Debtors' Stipulations"), in substance, and without limitation, to the following:

(i) Cocoa Services and BOW are parties to that certain Equipment Financing Agreement, and together with all related loan and security documents (the "Prepetition Loan Documents").

(ii) The amount outstanding on the Petition Date under the Equipment Financing Agreement was approximately $5,308,526.09 (the "Prepetition Obligations").

(iii) As set forth in the Prepetition Loan Documents, prior to the Petition Date, Cocoa Services granted to BOW security interests in and liens on (collectively, the "Prepetition Liens") the Prepetition Collateral.

(iv) The Prepetition Obligations are legal, non-avoidable obligations of Cocoa Services, and the Prepetition Liens constitute valid, binding, enforceable, and properly-perfected first priority liens encumbering the Prepetition Collateral that are not subject to avoidance or subordination pursuant to the Bankruptcy Code or applicable non-bankruptcy law.

Id. ¶ C (i) - (iv).⁹ The order is clear that the Debtors' Stipulations are without prejudice to the rights of interested parties (other than the Debtors or their successors) to:

(i) seek to object to or to challenge the findings herein, the Debtors' Stipulations, or any other stipulations herein, including, but not limited to, those in relation to (A) the validity, extent, priority, characterization or perfection of the security interests and liens of BOW with respect to the Prepetition Collateral, or (B) the validity, allowability, priority, characterization, secured status or amount of the Prepetition Obligations evidenced by the Prepetition Loan Documents; or (ii) otherwise assert any claim or cause of action, including, without limitation, any derivative action, against the BOW. Any party, including the Creditors' Committee (if appointed), that has been granted standing, must commence an adversary proceeding or contested matter, as required by the applicable Bankruptcy Rules, seeking to bring any claim, objection or challenge, including without limitation any claim or cause of action against BOW (each, a "Challenge").

Id. ¶ 9. The order also mandated that a party in interest seeking to bring a Challenge do so, no later than sixty (60) calendar days from the date of entry of the Final Order (the "Challenge Period"). Id. Finally, the order is clear that nothing in the order

vests or confers on any Person (as defined in the Bankruptcy Code), including any committee, standing or authority to pursue any cause of action belonging to the Debtors or their estates; provided, however, Alan Nisselson, the chapter 7 trustee of Transmar Commodity Group, Ltd, the sole shareholder of each of

...